JP Morgan Asset Management are expecting cooling inflation to prompt a hold at the Federal Open Market Committee (FOMC) meeting.
- We expect the Fed to leave the federal funds rate unchanged although both the post-meeting statement and the dot plot will likely emphasize that inaction this week should be considered “skipping a rate hike” rather than putting an end to monetary tightening.
- Indeed, Fed communications could explicitly warn of a possible further rate hike in July.
- On balance, however, cooling data on inflation and growth between now and that meeting should be enough to convince the Fed that no further tightening is warranted.
JPMAM go on with a little more on the question of ending this rate hike cycle, interesting:
- The FOMC should weigh progress on inflation against the risk of recession in its meeting this week. Looking at these two issues separately, it would seem to be an easy call – there is no need to raise the risk of recession any further to combat an inflation problem that is so clearly fading.
It should be an easy call – but that is not likely to be the message from the Fed this week. Indeed, it is possible that the post-meeting statement and press conference could reveal some dissent on the committee, with some voting to hike further at this time and others indicating a bias towards tightening again in July.
On balance, however, we think the numbers just won’t support any further tightening and this will become clearer in the next few weeks. If so, the investment environment could support lower long-term interest rates, a lower dollar and further gains in stock prices, as investors no longer have to fight a Fed that no longer has to fight inflation.
—
The Federal Open Market Committee (FOMC) statement is due at 2pm US Eastern time and Powell’s news conference follows a half hour later.
Earlier:
- Goldman Sachs: FOMC likely to keep rates unchanged; dollar depreciation expected later
- Week Ahead: US CPI, FOMC, Retail Sales; ECB; PBoC, China activity data
Fed funds: